Last week's closure of a prominent online bank has sent ripple effects through the Internet publishing economy, with thousands of Web sites cut off from lucrative advertising contracts.

NextCard, which operated the Web-based financial institution NextBank that federal regulators shut down last Thursday, has ceased its lavish spending on Net marketing for credit cards once issued by the bank.

Last Friday, NextCard sent notices to 100,000 partner Web sites, saying it could no longer pay commissions for referral accounts and asked that all links to NextCard be removed. Those payouts were the bread and butter of many small dot-coms.

"Quite frankly, they carried our business through the end of last year," said Curtis Arnold, marketing director at Cardratings.com, a credit card review site based in Little Rock, Ark.

"We usually sent them 100 to 150 new leads a month," he added. "At one point, we were getting checks for $20,000 a month from NextCard, and for a company with five people that is a significant chunk of our revenue."

The shakeout underscores the precariousness of affiliate programs--a staple of the online publishing business that has spawned swarms of shoestring operations on the strength of fleeting wellsprings of cash.

Despite its shaky position, NextCard supported many tiny Net publishers and contributed significantly to the Web advertising industry. The company was among the largest Net advertisers before its implosion, spending some $50 million a year on online marketing to the exclusion of other media. A chunk of that expenditure went to affiliate sites that promoted its credit cards and referred new customers.

At the beginning of 2001, it was the top advertiser in financial services, with more than 540 million paid impressions, or ads delivered, a month, according to Net researcher Jupiter Media Metrix. But Web advertising efforts dropped after October, when the company announced weak earnings and said it was looking for a buyer.

The company maintained its affiliate marketing program to drive new accounts up until last week--although the amount of referral payouts dropped after it restructured the program earlier this year to cut down on fraud.

"Our affiliates were quite a powerful sales channel; notifying them was the last step to stop all of our advertising," said David Dowhan, group vice president of marketing acquisition at NextCard.

Last week, trading was halted on NextCard and the Office of the Comptroller of the Currency closed down the bank after discovering it "was operating in an unsafe and unsound manner." The company is now looking for a new business.

A value play
NextCard issued low-interest credit cards that attracted a gamut of consumers, including some with risky credit histories. It paid affiliates between $20 and $60 for every new account referred, based on the type of account. Platinum cards typically earned a bounty of $60, for example. On average NextCard signed on between 10,000 and 15,000 new cardholders monthly through its partner sites.

The company operated its own affiliate marketing program, unlike many other Net companies that use services such as LinkShare or BeFree. NextCard built its own marketing system, called Internet database marketing, that let the company track money spent, performance at each site, and the return on investment.

"Hands down, the best value was through the affiliate channel," Dowhan said. "You can leverage the smarts of 100,000 people out there to help build your business.

"It was a shame to have to shut it down; we had a good run. The Net is losing one of its biggest advertisers."

Aside from affiliate marketing, NextCard pumped money to a bevy of Web publishers including Yahoo and New York Times Digital to drive new accounts. Dowhan said that Yahoo was a big partner for testing new advertising units; it also sponsored opt-in newsletters for NYTimes.com.

The company started "winding down" advertising late last year, however, once it ran into financial trouble. Dowhan said that the company was able to honor all of its advertising contracts before last week.

Small sites such as Cardratings.com will likely feel the loss the most.

Arnold said the partnership meant more than 50 percent of his company's revenue. Though the company is worried about a drop in revenue from losing NextCard, it hopes that other credit card issuers such as Fleet and Visa will make up the difference. But such card companies aren't as generous as NextCard; Arnold said NextCard's average payout for a new account was $48 compared with others at $30.

"Looking back, NextCard was being overly aggressive trying to dominate the market," Arnold said. "It's going to hurt us--it's just alarming because they were the pioneers in this medium, and they had dominant market share."